CarMax Q3 Earnings Preview: Will The Report Drive KMX Stock?
Zacks Investment Research | Dec 19, 2019 04:14AM ET
CarMax (NYSE:KMX) will report its third quarter earnings before the market opens on Friday, December 20. The automobile retailer’s stock is up over 57% in 2019 to outpace the automobile retail market’s 33% run.
The industry’s strong year has also been led by AutoZone (NYSE:AZO) and O’Reilly Auto Parts (NASDAQ:ORLY) . CarMax has also been able to have a breakout year despite the broader uncertainty in big ticket items like automobiles.
Gaining Steam
CarMax has been able to pick up steam in a market where the trade war has casted a cloud over the industry. The market also faces the uncertainty about whether younger millennials are willing to take on the commitment of buying an automobile. CarMax has tried to provide an alternative to consumers looking to purchase a car without the traditional hassles.
The used car retailer saw its net revenue grow 9% to $5.2 billion last quarter and bottom-line climb about 13% to $1.40 per share. Wholesale vehicle sales climbed 8%, with CarMax buying a higher percentage of appraised vehicles even as the volume of appraisals eased lower.
Comparable used-car unit sales were up 3.2% from year-ago levels, as CarMax sold 6.2% more used cars during the period than it did in the previous year period. Meanwhile, gains in other sales and revenue accelerated 8.5%.
Outlook
CarMax believes it still has room to grow despite being the largest used-car retailer in the United States. The company plans to leverage its scale to reach more consumers through its omnichannel strategy. The automobile retailer attempts to service customers who want to shop for a car online, in person, or a mix of both.
Some automobile retailers, like Carvana (NYSE:CVNA) , do well online but other smaller retailers don’t have the capital to afford a large website or the inventory required to bring a website enough reach. CarMax’s omnichannel abilities give the used car retailer an advantage over competitors and extends its growth runway. “Customers continue to tell us they value an omnichannel experience, empowering them to shop on their terms whenever and wherever is most convenient for them,” CEO Bill Nash said on the Q2 earnings call.
In addition, the company spent $128.3 million to buy back 1.5 million shares in Q2, which was a somewhat slower pace than in the first quarter. CarMax still has another $1.78 billion in accumulated cash left to potentially finance future repurchases.
Get The News You Want
Our Q3 consensus estimates forecast earnings to climb over 6% to $1.16 per share and for net revenue to climb 9.61% to $4.71 billion. Sales growth would be right on par with Q2 and earnings would be down from Q2’s 13% hike.
Used vehicle sales are projected to grow about 9.2% to $3.9 billion, which would be right on par with the growth rate it saw in the second quarter. Wholesale vehicle sales are estimated to grow 5%, which would represent a slight decrease from the 8% growth in Q2. Other sales and revenues are forecasted to rise 6.9%.
Bottom Line
CarMax’s omnichannel approach should bode well for the company as it provides a level of convenience to its customers that is difficult to find in the auto retail industry. CarMax has beaten our estimates the last four quarters with an average EPS surprise of 7.14%. The stock currently sits around 1.8% its 52-week high, and a strong report could send the stock to a new high.
The company currently trades around 17.5X its forward earnings, which is slightly below the industry average of 19.2X forward earnings. The discounted valuation could provide a solid entry point before a potential breakout.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q3 2019, while the S&P 500 gained +39.6%, five of our strategies returned +51.8%, +57.5%, +96.9%, +119.0%, and even +158.9%.
This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.